A nameless admin at Atlantis, a website selling everything from magic mushrooms to marijuana to crack cocaine, posted an advert on YouTube last week. The video was swiftly taken down, but not before about 40,000 people had seen it, copied down the strange URL and gone off to investigate. It's part of a bold new marketing campaign to allow people to easily buy illegal drugs, wherever they are in the world. Whether that's a good or bad thing is debatable.

Atlantis is a competitor to the Silk Road, an underground online market where drugs are bought and sold openly, sent to users under plain wrap in the mail. But where the Silk Road hides and does not share its URL very widely, Atlantis is shockingly blatant and comes over like a cocky web start-up. It is paying dividends: the site's owners claim to have processed half a million dollars in deals since March. There are allegations that it is a honeypot, drawing in ex-Silk Road vendors by charging lower fees, and offering proprietary encryption, rather than demanding that users learn PGP software (Pretty Good Privacy). This means the site's owners might be able to see where dealers on the site are sending drugs to, and identify customers, or listen in on email conversations and begin to expose dealers. Might the DEA have set up a bogus site to ensnare the unwary?

While nothing any government does around privacy should surprise us nowadays, from indiscriminately recording our every thought and whim, to spying on the grieving parents of murdered children with the aim of smearing their characters, the emergence of Atlantis and sites like it into the mainstream does raise the interesting prospect of a new war on encryption. Encryption software, most commonly PGP, scrambles your mail, making it impossible for a third party who does not own two special "keys" to read your mail.

Now the Prism and Tempora cats are out of the bag, and it's dawned on almost everyone what fools they've been, I'd guess that governments will soon be very keen to control encryption and will use the drug problem as a straw man defence for their next wave of intrusion. Note to government, it didn't work last time. To quote John Callas, who helped invent PGP with Phil Zimmerman: "PGP is just math, and you can't ban math."

In the UK, though, encryption can be a de facto crime under the Regulation of Investigatory Powers Act (Ripa), the Labour-era assault on civil liberties. Refuse to hand over the private keys to your private files and you can and will be jailed. IT website The Register reported in 2009 that the first person jailed under part three of Ripa was "a schizophrenic science hobbyist with no criminal record". Found with a model rocket as he returned from Paris, he refused to give police the keys to his encrypted data: indeed, he refused to speak at all, and was jailed for 13 months. Six months into his sentence the man was sectioned under the Mental Health Act and does not know when he will be released.

It's pretty easy to see what the initial official response to sites such as Atlantis will be. There'll be a concerted media campaign to scare people off. A few big busts of users, plus an attempted and likely very public assault on Bitcoin, the anonymous currency used to pay for the drugs.

But Bitcoin is essentially unassailable, because the currency has no central bank, and is made and maintained by a network of users. There's now enough of it in circulation to become a closed and private economy. Bitcoin is divisible into eight decimal places – 0.00000001 BTC is the smallest amount that can be handled in a transaction – so there's plenty of spare capacity. Perhaps an attack on Tor might work? Tor is the anonymising software that enables these markets to be hosted and accessed secretly. To quote Andrew Lewman, the Tor project's spokesman:

"Our code is all open source, everything we do is open source, and is mirrored all over the world. So even if, for whatever reason, let's say the paedophile-terrorist-druglords and the four horsemen of the apocalypse take over Tor and that's the majority usage, then the current Tor network could shut down, and just like a phoenix it will get born again. Then maybe we'll have 10 or 1,200 Tor networks because everyone starts running their own."

The only way to tackle online markets such as this is to make postal procedures hugely onerous. But that costs. The Royal Mail is about to be privatised and no one wants to invest. With 96% of itsstaff supporting a strike and opposing privatisation, it's hard to see workers agreeing to new requirements to scan every piece of post for drugs. In any case, queues in understaffed offices are so lengthy and the entire process of posting a letter so redolent of the frustrating world before the net there would be a customer revolt.

And there's no way sniffer dogs can tackle the circa 70m pieces of just domestic post at the sorting offices each day. When I was researching my book on the internet drugs trade, the Royal Mail refused to answer even the simplest questions about steps taken to identify packages containing drugs. The reason for that, postmen have told me privately, is that there are none. There's a new Russian anonymous market, that has just come online too. There will be many more, since prohibition makes their operation profitable and their use logical.

Free market economics, whose rules of supply and demand we so conspicuously ignore in this vast sector of the economy, make simple herbs and plant extracts or simply produced chemicals worth many millions of pounds per tonne. And so there will always be a market. That market has now been virtualised: Drugs 2.0 – click here to buy now.

But while I smile in disbelief at the defiance and subversion of sites like Silk Road and Atlantis, I can't help thinking that this cavalier dismantling of the failed and discredited prohibition model, replacing it with another system driven by private profit with no regard to people's health, risks exposing people to similar harms as prohibition did. Note past tense.